A $20-million contract for local nonprofit DigitalC to provide affordable broadband to every Cleveland resident, was heard and eventually held during Cleveland City Council’s Utilities Committee on Thursday.
Cleveland City Council is hoping to revisit the potential contract during its July meeting, Utilities Committee Chair Brian Kazy said.
The broadband expansion initiative would be $40 million and would come from $20 million in Cleveland’s American Rescue Plan Act money, $17 million from the Jack, Joseph, and Morton Mandel Foundation and the David and Inez Myers Foundation and $3 million from the federal government, CEO Joshua Edmonds said during a Thursday committee meeting.
But council members questioned whether the nonprofit has the capacity to execute on such a big contract, when the company has struggled with much smaller projects in the past.
“The elephant in the room is DigitalC has a very checkered history of overpromising and incredibly underdelivering in the city to the tune of a fraction of what was promised,” Councilman Kris Harsh said during the Thursday meeting.
Councilman Mike Polensek, who recommended holding the legislation, stressed the importance of improving broadband in Cleveland and said council would continue to keep an eye on the broadband project.
“There cannot be any hiccups,” Polensek said.
THE PLAN
DigitalC’s plan would provide wireless broadband Internet to all Cleveland households within 18 months at $18 per month, with upload and download speeds of at least 100 megabits per second. The project would continue through 2026, and DigitalC plans to fortify its network once all areas of the city are covered, Edmonds said.
The program would be available to people of all income levels, and the monthly rate will be capped at $18 per month for the first five years after completion. Then, DigitalC would be permitted to increase at only the rate of inflation for the five years after that, said Austin Davis, a senior policy advisor for the city.
To be sustainable in the long-term, DigitalC needs to get 25,000 customers in the next four years, Edmonds said.
If DigitalC gets the contract, it will spend a portion of that money upgrading its existing technology, some of which is incapable of the speeds DigitalC is promising.
“Some of the equipment we’re using right now is obsolete,” Edmonds said.
Download and upload speeds of 100 mbps is a minimum speed DigitalC guarantees under the plan. The technology is capable of faster speeds, and in some areas of Cleveland’s East Side, speeds have reached as high as 800 mbps, Edmonds said.
The 800 mbps speed was recorded earlier this month and was done more as proof of the technology’s power than a feasible speed in the short-term, Edmonds said.
“At some point, the speed I’m gushing over today will be obsolete,” Edmonds said of the promised 100 mbps speed. “But the technology we’re deploying will allow us to increase speed.”
STAFF SHAKEUP
DigitalC is aware of the concerns about “the old DigitalC,” Edmonds said. Last week, the nonprofit’s executive board went through a “rebalancing” that resulted in several employees losing their jobs, Edmonds said.
Those employee changes, which affected communications, marketing, branding, sales and more, were part of a restructuring in which DigitalC is switching from just “connecting the unconnected,” to competing with large internet providers for customers, Edmonds said.
“When it came time to start selling to someone who may already have AT&T or Sprint, that was not in our model before.”
One of the ways DigitalC is changing its approach is in how it markets its services, Edmonds told cleveland.com after the committee meeting. For example, previous marketing materials have advertised free high-speed internet, which is possible if residents also qualify for a federal subsidy. However, many residents saw the promise of a quality product for no charge and assumed there was some sort of catch, Edmonds said.
“It’s a different company. It’s a different approach,” Edmonds said during the committee meeting, of the changes DigitalC has undergone.
DIGITAL DILEMMA
Public records obtained by cleveland.com show that while DigitalC finished first in the city’s competitive bidding process, the nonprofit also spent more than it made for at least three years in a row.
DigitalC scored higher than seven other companies that bid on the $20 million broadband contract, according to documents cleveland.com obtained through a public records request.
Those other companies included AT&T, T-Mobile, Spectrum and PCs for People, which is managing Cuyahoga County’s $19.4 million broadband expansion, also funded by ARPA dollars.
DigitalC scored higher than any of its competitors in the categories of impact, content and deployment speed and outreach. However, it tied for last place in Phase II progress, documents show.
Overall, DigitalC scored 97 out of 140 possible points. The next closest competitor was SiFi Networks — Mayor Justin Bibb has said SiFi will conduct its own privately funded broadband expansion in the city – which scored an 81, followed by AT&T, which scored a 72.
However, financial records continue to raise questions about DigitalC’s ability to see through the city’s massive broadband expansion project.
In 2019, 2020 and 2021, expenses exceeded revenues for DigitalC, according to IRS tax records. The 2021 tax record is the most recent available and was obtained through a Freedom of Information Act request to the IRS.
Between 2017 and 2021, revenues grew by 122%, while expenses grew by 174%, according to tax records.
In 2021, expenses exceeded revenue by more than $560,000, which is the largest deficit the nonprofit has run since at least 2017, the earliest year for which records are available. For comparison, DigitalC’s 2021 revenue was roughly $5.4 million.
In 2020, the nonprofit ran a roughly $44,000 deficit, and in 2019, it ran roughly $154,000 in the red, according to tax records.
Between 2018 and 2021 (detailed financial records were not readily available for 2017), expenses increased across the board. Management costs doubled; salaries doubled; legal costs quintupled and between 2020 and 2021, then-CEO Dorothy Baunach’s salary increased by nearly $70,000. Engineering and installation costs have also risen, as DigitalC has expanded its service area.
As of 2023, DigitalC has roughly $5 million in its financial reserves and is no longer running a deficit, Edmonds said.
While revealing, the tax documents could be construed as outdated. Since 2021, DigitalC has had two different leaders running the organization.
When reviewing bidding documents, Cleveland looked at DigitalC’s tax forms and determined the broadband expansion plan is “fiscally sustainable,” city spokeswoman Marie Zickefoose said in a text message.
Concerns over DigitalC’s ability to execute such a large contract are not new. The nonprofit, which was previously known as OneCleveland, then OneCommunity, had set a goal in 2015 of connecting 40,000 homes to broadband by 2025. Today, DigitalC has only about 2,000 customers, cleveland.com reported previously.
That relatively low number of customers, compared to how many DigitalC seeks to enroll in their program, also was cause for concern for Kazy, the Utilities Committee chair.
“That throws up a red flag to me,” Kazy said. “You have these monster goals, but you only have 2,000 subscribers.”
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